Pension funds threaten to boycott corporate bonds

Pension funds are threatening to boycott the local corporate bond market due to huge losses suffered following the collapse of Chase and Imperial banks.

The fund managers say the collapse of the two banks has seen the industry lose close to eight billion shillings invested in corporate bonds issued by the two lenders before they collapsed.

The collapse of Chase and Imperial banks shook the Kenyan banking scene leading to panic withdrawals.

Months before they went belly-up the two lenders had floated corporate bonds worth 10 billion shillings for Imperial and 2 billion shillings for Chase Bank.

The biggest losers were pension managers who cumulatively snapped up close to 80% of the two bonds.

Today pension fund managers are still waiting for a word from the Kenya Deposit Insurance Corporation and Central Bank of Kenya on whether they shall ever be compensated over their losses.

Recently Mauritius based bank SBM completed the acquisition of Chase Bank giving creditors some hopes of recovering their funds.

Zamara Kenya executive director James Olubayi says there is a policy lapse within the Kenyan financial system, with the law silent on how to compensate fund managers. Currently they are classified as ordinary depositors who are subject to a maximum of 100 thousand shillings.

The collapse of the two banking firms has led to a major drop in the issuance of corporate bonds, leaving the government to dominate the market through the treasury bonds. In the last two and a half years only one corporate bond has been issued.

Efforts by fund managers to sue CBK, SBM bank and the KDIC to recover their investments have borne no fruits.

  

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